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Exam 30: Money Growth and Inflation

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Question 81

Multiple Choice

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According to the assumptions of the quantity theory of money, if the money supply increases by 4 percent, then

A) nominal and real GDP would rise by 0.40 percent.
B) nominal GDP would rise by 4 percent; real GDP would be unchanged.
C) nominal GDP would be unchanged; real GDP would rise by 4 percent.
D) neither nominal GDP nor real GDP would change.

E) B) and C)
F) A) and B)

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Question 82

Multiple Choice

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When inflation rises, people make

A) less frequent trips to the bank and firms make less frequent price changes.
B) less frequent trips to the bank while firms make more frequent price changes.
C) more frequent trips to the bank while firms make less frequent price changes.
D) more frequent trips to the bank and firms make more frequent price changes.

E) B) and C)
F) A) and B)

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Question 83

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Even though monetary policy is neutral in the short run, it may have profound real effects in the long run.

According to the quantity equation, the price level would change less than proportionately with a rise in the money supply if there were also either a

The Fisher effect is crucial for understanding changes over time in the

The United States has never had deflation.

Inflation is costly only if it is unanticipated.

If the real interest rate is 11 percent and the price level is falling at a rate of 5 percent, what is the nominal interest rate?

The velocity of money is

When the Fed increases the money supply and creates inflation, it erodes the real value of the unit of account and makes it more difficult for investors to sort successful from unsuccessful firms.

What is the inflation tax, and how might it explain the creation of inflation by a central bank?

The consumer price index increases from 200 to 208. What is the inflation rate?

During the late 19th century, the U.S. price level fell. This unexpected increase in the real cost of borrowing caused wealth to be redistributed from _____ to _____.

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 0.8 percent. Then the inflation rate is 2.7 percent.

Figure 30-3 On the following graph, MS represents the money supply and MD represents money demand. -Refer to Figure 30-3. Suppose the relevant money-supply curve is the one labeled MS₂; also suppose the economy's real GDP is 65,000 for the year. If the market for money is in equilibrium, then the velocity of money is approximately

In 2010 the U.S. government was running a large deficit. Some were concerned that pressures might be put on the Federal Reserve to purchase government bonds to help the government finance this deficit. If the Fed were to buy government bonds to help the government finance its expenditures, then the price level would

The inflation tax falls mostly heavily on those who hold

Economists agree that increases in the money-supply growth rate increase inflation and that inflation is undesirable. So why have there been hyperinflations and how have they been ended?

When the consumer price index increases, the value of your money has _____. According to the quantity theory of money this is caused by an increase in the _____.

Figure 30-3 On the following graph, MS represents the money supply and MD represents money demand. -Refer to Figure 30-3. Which of the following events could explain a shift of the money-supply curve from MS₂ to MS₁?